Educational Articles

From the Survey: MetroPCS

Andrew J. Cueter
| March 17, 2012

MetroPCS (PCS) was founded in 1994 as General Wireless, Inc.(GWI), by two former PageMart Wireless executives, Roger D. Linquist and Malcolm Lorang, with the purpose of bidding for personal communications service (PCS) licenses sold by the Federal Communications Commission (FCC) and financing the network development through venture-capital investments. Both Mr. Linquist and Mr. Lorang remain with the company and hold the positions of Chairman, President and CEO, and Senior Vice President and Chief Technology Officer, respectively.

In 1996, General Wireless participated in the FCC’s C-Block auction, which was designated for companies with $125 million, or less, in annual revenues. The company bid $1.06 billion and won 14 PCS licenses. That same year, it filed for an initial public offering (IPO), hoping to generate funds to finance license payments and build its network. However, in April, 1997 its IPO plans were canceled due to a rapidly weakening market for wireless stocks.

Running low on money, the company filed for bankruptcy protection and asked the FCC to reduce its bid price because management believed the fair market value of the acquired licenses had fallen due to waning investor interest and the sale of other licenses in the same territories. The FCC refused, and suggested that GWI could return some or all of the licenses that it could not pay for. With little recourse, General Wireless sued the FCC claiming that the commission overcharged it by more than $750 million. In April 1998, a U.S. bankruptcy court judge agreed with GWI and revalued the company’s 14 acquired licenses, thereby reducing its financial obligation to the FCC by $894 million. Later in the year, General Wireless emerged from bankruptcy and changed its name to MetroPCS Communications, Inc.

In 2007, MetroPCS held an IPO, and its shares currently trade on The New York Stock Exchange. As of January, 2012, the company had over nine million subscribers in 10 states and 13 major metropolitan markets, including Atlanta, Georgia; Dallas and Ft. Worth, Texas; Detroit, Michigan; Las Vegas, Nevada; Los Angeles and San Francisco, California; Miami, Florida; and New York, New York. MetroPCS also has roaming agreements with other wireless providers, which allows it to offer service outside of its own territories. These roaming agreements, together with the area it covers from its own network, allow customers to receive service in an area covering over 280 million people (roughly 90% of the U.S. population).

How is it that MetroPCS can compete with these household names? Quite simply, the company provides convenience and it offers predictable and affordable products with excellent customer service. To make a profit, the company must deal in volume, similar to other low-cost providers, most famously Wal-Mart (WMT - Free Wal-Mart Stock Report). Its services are predominantly offered on a no long-term contract, paid-in-advance, flat-rate unlimited usage basis, which include all applicable taxes and regulatory fees. This provides customers with cost certainty – an especially valuable commodity in times of economical uncertainty.

Additionally, the aggregate population density in and around the metropolitan areas MetroPCS serves over its networks are substantially higher than the national average. The company believes this factor results in increased efficiencies in network deployment, operations and product distribution. These economies of scale are what allows MetroPCS the ability to offer such low rates to customers, while still turning a profit.

As the company looks to ascend to the top of the industry leader board, it will continue to focus on what has brought it to its current standing, while looking for additional opportunities for growth. To expand its customer base, it will also market itself as a substitute for landline service. Moreover, MetroPCS plans to make significant capital improvements to its network so that it may offer subscribers competitive and technologically advanced services. Too, whenever possible, it will look to expand in and around the metropolitan areas it currently serves. This may require the company to acquire or gain access to additional spectrum or enter into or expand roaming arrangements with other wireless carriers beyond those in which its customers currently can receive service. Alternatively, MetroPCS may pursue merger or acquisition opportunities. For a detailed evaluation of MetroPCS’ business and the equity’s investment merits, subscribers are advised to monitor our regular quarterly coverage in The Value Line Investment Survey, while keeping an eye out for Supplementary Reports when breaking news occurs.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.